Monitoring events in Balochistan, CPEC (China Pakistan Economic Corridor), China's Belt and Road Initiative and it's economic and strategic implications, Pakistan Military operations and ongoing Baloch struggle.News and Reports are collected from open sources to raise awareness among scholars, researchers and public in general.

Search This Blog

TRIVIUM CHINA: The Tip Sheet, know china better

Some context: The Politburo met on Wednesday to discuss the economy's trajectory. Things are not looking good, and the Politburo wanted to signal support. But there was little new in terms of policy. More in the Tip Sheet below.

The pressure to grow the Tip Sheet audience has increased. Help us out by passing it on to friends and colleagues who can click here to subscribe.

And as always – keep the great comments, questions, tips, and complaints coming.

THE TIP SHEET

DRIVING THE DAY

1. Politburo signals more support for the economy, sort of

The Politburo convened yesterday for its quarterly economic review.

The meeting was highly anticipated – businesses and markets have been anxious to see how China’s leaders would respond to the further slowing of the economy.

The readout acknowledged that things aren't going well:

“Downward economic pressure has increased, some companies are facing relatively many operating difficulties, and hidden risks accumulated over time are starting to come to light.”The readout called for policymakers to be more proactive:“In response, [we] must attach great importance to and strengthen preventative and timely countermeasures.”But the real emphasis was on implementing already-existing policies, not rolling out a lot of new measures:"[We] must aggressively focus on implementation to make sure that already-released policy measures take effect as soon as possible.”So don’t expect a major new round of stimulus. Overall, the readout signaled policy continuity:Supply-side structural reform (SSSR) remains the overall policy framework.Fiscal policy remains "proactive."Monetary policy remains "prudent."The meeting reiterated a shifting balance between de-risking and investment:Deleveraging is no longer the main focus of SSSR.Instead, “shoring up weak spots” is now the dominant theme – that should lead to more infrastructure investment (see Entry 3).

But that shift is not new. It's been signaled since the summer.

Get smart: Most reporting on the meeting has touted it as signaling large stimulus. That's not our read – we don't see much new here.

Markets were unmoved by the announcement – most were more or less flat on the day. That seems about right to us.

The bottom line: The problem isn't that policymakers aren't doing enough to support the economy, the problems is that their policy levers are limited and not very effective.

Perhaps the most important outcome from yesterday’s Politburo meeting – they did not set a date for a plenum.

To us, that’s a BIG DEAL (SCMP):

“'It’s the biggest story, or non-story, in China right now,' said Trey McArver, co-founder of Trivium China, a Beijing-based research consultancy."Some context:“The autumn plenum that comes a year after the party’s national congress is largely seen as the most important full meeting of the party’s roughly 400-strong political elite, who gather behind closed doors at least once a year.”“In recent decades, it was often an occasion when Chinese leaders revealed major reform programmes and new economic blueprints.”

But remember, this has already been a strange year. Xi convened an extra plenum in February to discuss the changes to the PRC Constitution.

So what is going on? There is speculation that the plenum has not been set because of a lack of clarity about what to do with economic policy.

Then again, it might signal that leaders are confident in the strategy laid out at the 2013 plenum, and see no need to take a different path.

One interesting theory kicking around: They will hold the plenum from Dec 18-22. That’s exactly 40 years after the landmark 1978 Third Plenum that kicked off reform and opening.

The bottom line: The lack of clarity around the plenum is increasing uncertainty at a time when the economy is already feeling fragile. That's not good for markets or business.

In a move that looks timed to coincide with the Politburo meeting, the State Council announced a big infrastructure plan yesterday.

The plan hits all the highlights, including:

RailwaysRoadsAirportsPower gridsHydroelectric plansNatural gas infrastructureBut this is not a spending free-for-all.

The document makes clear that local governments will remain under pressure to be fiscally responsible:"Local government construction investment shouldremain within means.”“Fiscal constraints [should be] strengthened.”"Financial institutions must be prudent in issuing credit...and consider the project’s cash flow…and the borrower's ability to service the loan"

Get smart: This is not so much about new projects. It's more about making sure that already planned projects are carried out in a timely manner.

The bottom line: We know we sound like a broken record, but we’re going to say it one more time – current supportive measures are all about cushioning the slowdown, not reversing it.

The Politburo identified one big reason that the economy is struggling:

“The external environment has experience profound changes.”What that means in plain English:We are in a trade war with the United States. And they are restricting us from buying technology or investing in high-tech companies abroad.

This has China’s top leaders freaked. They are now determined to develop core technologies domestically and reduce dependence on foreign technology.

So it came as little surprise that the Politburo held a study session on artificial intelligence yesterday.

Xi sees AI as core to China’s future:“Artificial intelligence…will have profound and far-reaching effects on the international political economic structure.”“Accelerating development of next-generation artificial intelligence is an important strategic starting point for our winning the initiative in international technological competition.”Xi told his fellow Politburo members that they all need to do their part:“Leading cadres at all levels…must strengthen policy support.”Get smart: Xi Jinping is absolutely determined to make China the world leader in AI. Don’t expect the Party to spare any resources in trying to make that happen.

The 21st Century Business Herald is out with an interesting and important look at the state of export growth in China’s eastern coastal provinces.

The piece highlights the obvious divergence between industrial performance, which is bad and getting worse, and export growth, which is booming – even in the face of the US-China trade war.

September showed especially strong performance:

September export growth in Guangdong, Zhejiang, Jiangsu, and Shandong accelerated by 0.8, 2.8, 0.9, and 2.7 percentage points, respectively, over growth in the first eight months of the year.That put Shandong's export growth in September alone at 27.1% y/y.

Get smart: The solid export growth is all about buyers and sellers trying to get ahead of tariff implementation in the US-China trade war.

Get smarter: Because of their tiered nature, there is always another round of tariffs coming. So US importers are still incentivized to frontload purchases from China.

What to watch: The US is considering broadening the tariffs to include all Chinese goods. If that happens, the new tariffs would likely go into place in early February. At that point, there will be nothing left to frontload, and the great export numbers now will turn into awful export numbers then.

The July 2017 National Financial Work Conference decided to reconfigure the central bank’s regional branch network.

The plan: Replace the nine regional branches with branches in every province.

Caijing reports that the restructuring got under way last week, and will be completed in 2020.

Some context: China set up nine regional central banks, similar to the US Federal Reserve system, in 1998. The goal was to keep prevent provincial authorities from messing with monetary policy.

But things did not go smoothly. In 2004, the central bank added sub-regional branches in each province to appease local governments. Those branches basically functioned as arms of the provincial government.

The current restructuring acknowledges the reality that the regional banks had little sway over their provincial sub-branches.

The bottom line: Practically, this will have little impact on monetary policy or financial regulation.

Comments

Post a Comment

Popular posts from this blog

“ Commando Muddassir Iqbal was part of the team who conducted Army Public School operation on 16 December 2014. In this video he reveals that he along with other commandos was ordered to kill the innocent children inside school, when asked why should they kill children after killing all the terrorist he was told that it would be a chance to defame Taliban and get nation on the side. He and all other commandos killed children and later Taliban was blamed.
Muddassir Iqbal has deserted the military and now he is with mujahedeen somewhere in AF PAK border area”
For authenticity of this tape journalists can easy reach to his home town to interview his family members or ISPR as he reveals his army service number”
Asalam o Alaikum: My name is Muddassir Iqbal. My father’s name is Naimat Ali. I belong to Sialkot divison (Punjab province), my village is Shamsher Poor and district, tehsil and post office Narowal. Unfortunately I was working in Pakistan army. I feel embarrassed to tell you …

The Rise of China-Europe RailwaysMarch 6, 2018The Dawn of a New Commercial Era?For over two millennia, technology and politics have shaped trade across the Eurasian supercontinent. The compass and domesticated camels helped the “silk routes” emerge between 200 and 400 CE, and peaceful interactions between the Han and Hellenic empires allowed overland trade to flourish. A major shift occurred in the late fifteenth century, when the invention of large ocean-going vessels and new navigation methods made maritime trade more competitive. Mercantilism and competition among Europe’s colonial powers helped pull commerce to the coastlines. Since then, commerce between Asia and Europe has traveled primarily by sea.1Against this historical backdrop, new railway services between China and Europe have emerged rapidly. Just 10 years ago, regular direct freight services from China to Europe did not exist.2 Today, they connect roughly 35 Chinese…